Vietnam tries to cope with new bout of gold fever

HANOI, Vietnam -- In 1954, the year Vietnam was split in two by the Geneva Accords, Do Thi Mien bought her first gold ring with money she had earned selling grass to cow farmers.

For more than 55 years, Mien remained a gold bug, like most of her compatriots, investing almost exclusively in the yellow metal. She kept gold rings locked in steel boxes buried under a floor and, after their value increased, used them to buy a motorcycle for her son.

This year, after selling a piece of land, Mien decided to try a new investment strategy: instead of buying gold, the 73-year-old grandmother stuck the money in a short-term deposit account.

"With 280 million dong ($13,580) at an interest rate of 14 percent, I'll make 10 million dong in interest in three months' time," she said. "If I buy gold, it'd still be a form of a saving, but I wouldn't get the interest."

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Her investment choice -- away from gold -- might signal that Vietnamese policymakers are reaping some success after years of effort to wean the populace off gold, de-dollarise the economy and instill confidence in the local currency.

Perhaps for the first time in Vietnam's modern history, gold can become less dominant as a form of money.

But perhaps not, thanks mostly to forces at work outside Vietnam. Global gold fever this month amid deepening uncertainty about the world economy is threatening the Vietnamese government's progress in chipping away at the centuries-old affinity for the metal. World gold prices have leapt 27 percent since the start of July, and prices in Vietnam have followed.

So Mien now has remorse about putting money in the bank, which she earlier thought was the best option financially.

"I wish I had bought gold," she laments. "I had hoped I could buy a gold necklace from the interest at the bank, but gold prices have gone up so much that it's not affordable now."

For the Vietnamese government, what's at stake in trying to get citizens to stop investing just in gold is an important piece of Vietnam's economic stability puzzle.

Economists widely see gold as a currency in Vietnam. Last year, the Asian Development Bank said Vietnamese hold more gold per dollar of income than anyone else in the world, which underlies the lack of confidence in the dong.

Former State Bank of Vietnam governor Cao Si Kiem said that while the central bank has estimated the populace has 573 tonnes of gold, the total might be 1,000 tonnes.

When gold demand rises in Vietnam, dollar demand rises in tandem, putting the dong under pressure to fall. Speculative buying of gold can fuel inflation, which the government has been battling to beat down from annual levels above 20 percent.

The government wants to cool gold fever. The central bank on Tuesday announced its intention to narrow the gap between global gold prices and those onshore in a bid to end speculative activity.

Since last year, the central bank has taken steps to try to discourage use of gold and dollars. Banks were forbidden to lend gold and trade gold bars while 20 gold trading houses were shut down. Police cracked down on dollar transactions in the black market, which for a time pushed down demand and stopped gold in Vietnam from trading at a premium to world prices.

"Gold demand decreased sharply by 40 percent in the second quarter due to government policies," said Nguyen Ngoc Trong, director of gold business at Phu Nhuan Jewelry (PNJ), a major manufacturer that's listed in Ho Chi Minh City.

Vietnam, for a time, stopped being a major gold importer. Custom data showed that "gold and precious stones" imports -- which are mostly gold -- decreased to $20 million in June from $281 million in January.

When onshore gold prices slipped below world ones, exports were spurred. In the first six months, Vietnam exported about 24 tonnes of gold, bringing in roughly $1.4 billion, according to customs data.

Gold exports helped Vietnam have a rare trade surplus in July and allowed the country to rebuild its foreign exchange reserves, which Le Xuan Nghia, vice chairman of the National Financial Supervisory Committee, said had sunk to $7-8 billion earlier this year from $23 billion in 2008. That, in turn, has helped keep the exchange rate stable much of the year.

"The high volume of dollars supply from gold exporters has nailed the exchange rate down. Otherwise, the dong would be under great pressure to depreciate due to the trade deficit," said Le Quang Trung, deputy general director of Vietnam International Bank (VIB).

But when many people around the world started worrying about another recession and turned to gold as the traditional safe haven, the retail price in Vietnam jumped back above international levels. Many Vietnamese, too, wanted to put cash into gold.
"The world gold price hike is irresistible," said Kiem, the former central bank governor. With Vietnamese catching gold fever again, he said, "fighting inflation and stabilising the economy will be more difficult."

Le Dang Doanh, an independent economist and former government advisor, said improvements in the trade account will be short lived while smuggling in of gold over Vietnam's porous borders is highly likely to resume with the price onshore again at a premium.

Doanh said gold-import and trading is "in the hands of a tiny number of rich and powerful men." He asserted that up to 60 tonnes a year is smuggled into Vietnam, and he called the smuggling "the elephant in the room but nobody sees it."

Consumer demand has been robust. Tran Nhan Tong, one of Hanoi's streets filled with gold shops, has been frenetic, even after the State Bank of Vietnam on Aug. 9 said it would allow domestic and jewelry-making firms to import five tonnes of gold to deal with increased demand.

The day before the central bank's announcement, the gold price in Hanoi reached a record high of 46.25 million dong per tael, about 2.1 million dong higher than the prevailing world price. (A tael is equivalent to 37.5 grams or 1.21 troy ounce.)

Since Aug. 8, there've been a series of records, including Tuesday's level of 49 million dong per tael.

"Gold buyers are very excited now," said Trong of PNJ.

Alan Pham, an economist at VinaSecurities in Ho Chi Minh City, said speculation in the gold market "is driven by the fact that lots of capital in the economy has no channel to invest at the moment, since the stock market is in bad shape, real estate is frozen and government rate on bonds is falling."

"Gold is the only market people can put money in and hope to make quick profit," he said.

Kiem, the former central bank governor and current advisor, says the SBV is considering ways to slow the trade of physical gold and bringing more circulating gold in circulation into state coffers. It may issue gold bonds, allow gold holders to trade their holdings on the stock market and make loans while socking their gold in state warehouses.

At gold shops, occasional price dips are making some people hesitate before plunking more cash into gold.

At Bao Tin Minh Chau, one of Hanoi's biggest gold and jewelry shops, Nguyen Thi Binh stood for half an hour, clinging to a bag of money, watching prices move on an electronic board.

"I withdrew this money from the bank, but now seeing more people selling than buying, I think I'll return the deposit to the bank," she said.
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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."